Jaspreet Singh: 3 ‘Mega Threats’ to the Economy in 2024 and How You Can Prepare
Things aren’t looking great for the U.S. economy, according to financial influencer Jaspreet Singh. On his popular Minority Mindset YouTube channel, Singh recently said that although the White House, Wall Street and our Central Bank keep indicating how strong the U.S. economy will be in 2024 and beyond because a recession is not on the horizon, he believes there are some major red flags that are being overlooked by many.
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Here’s Singh’s take on these economic threats — along with his advice on how to prepare for them.
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The Inevitable Credit Crunch
Singh said the credit crunch, which has three parts, will result from the multi-trillion dollar debt mountain that the U.S. created during the pandemic.
How It Will Affect Corporations
Singh explained that the first part of the credit crunch will be connected to corporations. He said that every corporation during the pandemic boom was going out and borrowing tons of money very cheaply, because during 2020, 2021 and the first half of 2022, interest rates were at their lowest levels ever.
Singh explained that corporations generally get loans with three- to seven-year terms and must readjust their debt much more quickly than someone with a 30-year fixed trade mortgage.
“Well, we are starting to see this first wave of corporate debt readjustments [that are] going to happen in 2024, and you’ll see it even more accelerate in 2025,” Singh said. “And so, if interest rates stay high in 2024 and 2025 — which is what the Federal Reserve Bank says will likely need to happen to fight inflation — that means all these corporations that are sitting on these huge piles of debt are going to see their debt payments skyrocket.”
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How It Will Affect Owners of Commercial Real Estate
Singh also pointed out that it’s not only corporations, but it’s also commercial landlords who are in trouble. He said that during the pandemic boom, there were a lot of corporate landlords that bought properties or refinanced their properties to low interest rates, which allowed them to lower their costs.
“They’re facing a unique dilemma because just like corporations, if you go out and you invest in commercial real estate, you’re generally not getting a 25- or 30-year mortgage,” shared Singh. “Many times, you’re getting a five-year loan that’s going to readjust.”
The flipside of the issue is as costs rise for landlords, many will push those costs down to their tenants in the form of raising rents, Singh said.
He also brought up that a lot of office buildings are 25%-50% vacant thanks to the new hybrid-style working arrangements. He said that this poses a problem for the landlords who own these semi-vacant buildings because they don’t want to raise rents and lose the tenants they currently have.
How It Will Affect Banks
Singh said the third part of the credit crunch has to do with banks. He talked about the Silicon Valley Bank collapse and a couple other banks that failed because they couldn’t make their payments and were sitting on underwater assets. He explained that the assets the banks were sitting on that were underwater were bonds, in particular treasury bonds. He said that the way the bond market works is that as interest rates rise, bond prices generally fall, which makes them less valuable.
“Now, what has happened since Silicon Valley Bank — we’ve seen interest rates rise even further, which means bond prices have fallen further, which means that other commercial banks are sitting underwater on these assets. And if you start to see more pain in the economy and people can’t keep making their payments to the bank — maybe it’s commercial landlords, maybe it’s businesses — and banks can’t go and raise more money because they’re underwater in their assets, you can start to see how this could create more issues in the banking sector.”
Delayed Impact of Higher Interest Rates on Unemployment and the Job Market
“The reason why the Federal Reserve Bank raises interest rates to cool down inflation is because when everybody has money to spend, you see the demand for things go up,” explained Singh. “When the Federal Reserve Bank raises interest rates … that cools down demand. Why? Because they make spending money more expensive.
“But there are impacts to this because our economic system runs on spending,” he continued. “If everybody has the money to go out and stand in line to buy Gucci, what does that mean? Gucci is going to … want to open up more stores … they’re going to commission creating more handbags and … they’re going to want to hire more salespeople to keep selling their stuff. So if everybody’s spending money at Gucci, Gucci’s got the money to hire more people and to expand and to continue building their operations, which means more people have jobs and their business is booming.
“But when sales are slowing, it’s the opposite. Maybe Gucci has to shut down their stores. Maybe they got to lay off some of their employees … maybe they don’t commission as many handbags, and so some of their manufacturers or their suppliers start to lose revenue. Maybe they have to downsize as well.”
Singh said at the tail-end of 2023, companies were slowing down their hiring and also wage growth has been slowing for months. He added that some companies are cutting salaries of new employees.
“If interest rates stay high you can expect this trend to continue into 2024, which could result in higher unemployment,” Singh cautioned. “Higher unemployment means more people don’t have a job. If more people don’t have a job, well, that naturally has an impact on the economy.”
Cost-of-Living Dilemma
Last but not least, Singh talked about the cost-of-living dilemma, which he said resulted from rising inflation and falling wages. He said that even though a lot of people are talking about how inflation is cooling down, it’s important to remember a few things:
Inflation compounds.
Cooling inflation does not mean prices are falling. It only means that prices are rising less quickly.
Singh pointed out that the inflation we’re seeing today is higher than any inflation we’ve seen in the past four years because it has compounded.
“So now, today, we still have high inflation — still higher than many people’s wage growth and still higher than the Federal Reserve bank’s expectations,” Singh said. “And this is on top of the previous year’s inflation, which means more and more people have less money to spend on themselves, have less money to save [and] have less money to invest because they have to spend more money on their housing, on their travel and on their groceries. And the way that many people have been coping with these higher expenses was digging into things like credit cards, which is why we’ve seen a record high amount of credit card debt today.”
Singh went on to say that if people keep accelerating their credit card debt, digging into their life savings accounts and 401(k)s, they will eventually hit a “breaking point.”
“I want you to understand that we have these red flags in the economy that I want you to remember and understand because our economy is a very very large puzzle,” Singh warned. “It’s not just one thing. And I want you to be financially educated. That way, you don’t get blindsided by anything, and that way you can capitalize on opportunities that might come your way.”
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